RDA Executive Recruiters, LLC et al v. Deckelbaum

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
RICHARD SAMUEL DECKELBAUM,
DEBTOR.
SILVERDEER, LLC; SILVERDEER
MANAGEMENT, LLC; HOWARD A.
JACOBSON,
Plaintiffs
v.
RICHARD SAMUEL DECKELBAUM,
Defendant
RDA EXECUTIVE RECRUITERS, LLC and
RDA RECRUITERS, LLC,
Plaintiffs
v.
RICHARD S. DECKELBAUM,
Defendant
CASE NO. 10-06021-8-JRL
CHAPTER 7
ADVERSARY PROCEEDING
NO. 11-00075-8-JRL
ADVERSARY PROCEEDING
NO. 11-00076-8-JRL
SO ORDERED.
SIGNED this 19 day of October, 2011.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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ORDER
This matter came before the court on Richard S. Deckelbaum’s (“defendant”) motion to
reconsider an order filed by the court on June 16, 2011. A hearing on this matter was held on
August 30, 2011 in Raleigh, North Carolina.
JURISDICTION
This court has jurisdiction over the parties and the subject matter of this proceeding
pursuant to 28 U.S.C. §§ 151, 157, and 1334, and the General Order of Reference entered by the
United States District Court for the Eastern District of North Carolina on August 3, 1984. This
is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2), which this court may hear and
determine.
FACTS
The defendant filed for relief under chapter 7 of the Bankruptcy Code on July 29, 2010.
On February 28, 2011, two adversary proceedings were commenced against the defendant.
SilverDeer, LLC; SilverDeer Management, LLC; and Howard A. Jacobson (collectively
“SilverDeer plaintiffs”) and RDA Executive Recruiters, LLC, and RDA Recruiters, LLC
(collectively “RDA plaintiffs”) each filed complaints objecting to the defendant’s discharge
pursuant to § 727 and the dischargeability of specific claims under § 523(a)(2), (4), and (6) of
the Bankruptcy Code. On March 31, 2011, the defendant filed a motion to dismiss both
adversary proceedings on the basis that both plaintiffs’ claims were time barred. The defendant
also argued that both plaintiffs failed to state a claim under § 727 of the Bankruptcy Code for
which relief could be granted pursuant to Bankruptcy Rule 7012(b)(6). Both plaintiffs argued
that the chapter 7 trustee timely filed motions and obtained orders to extend the time to file
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complaints to March 1, 2011, as to all creditors. Both plaintiffs also argued that the doctrine of
equitable tolling extended their time to file specific dischargeability actions under § 523 of the
Bankruptcy Code.
A hearing was held on June 17, 2011 on the defendant’s motion to dismiss. The court
made the following findings of fact: The trustee’s motion and subsequent court order extended
the time to file § 727 objections with regard to the trustee and all other creditors. The trustee
was not a “party in interest” under Bankruptcy Rule 4007(c) and could not extend the deadline
for filing objections to the discharge of specific debts under § 523 of the Bankruptcy Code. Both
plaintiffs failed to provide sufficient factual assertions in their complaint to allow the court to
determine whether the doctrine of equitable tolling applied.
Based on those findings, the court entered an order on June 17, 2011, denying the
defendant’s motion to dismiss the § 727 objections to discharge on the ground that the claim was
time barred and granted both plaintiffs 20 days to amend their pleadings to include a factual
predicate for their reliance on equitable tolling of the Rule 4007(c) deadline.
On June 28, 2011, the SilverDeer plaintiffs filed their first amended complaint, and the
RDA plaintiffs took a voluntary dismissal of their § 523 claims against the defendant. The
defendant then filed this motion to reconsider the June 17, 2011 order on June 29, 2011. During
the August 30, 2011 hearing on the defendant’s motion, it became clear that the parties were
confused about whether the court had denied the defendant’s motion to dismiss both plaintiffs’ §
727 claims pursuant to B.R. 7012(b)(6) in the June 17, 2011 order. The court had withheld its
ruling on that ground because the plaintiffs had been granted time to amend their complaints.
After the hearing, the court allowed both plaintiffs 10 days to amend their complaints. On
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August 31, 2011 the SilverDeer plaintiffs filed their second amended complaint, and the RDA
plaintiffs filed their first amended complaint. 	The defendant filed an amended answer to both
complaints on September 16, 2011. From the parties amended complaints and answers the court
will rule on the defendant’s motion to dismiss both adversary proceedings.
DISCUSSION
11 U.S.C. § 727 CLAIMS
The defendant first argues that both plaintiffs’ claims for relief pursuant to § 727 of the
Bankruptcy Code should be dismissed for failure to state a claim upon which relief can be
granted. Under Federal Rule of Civil Procedure 12(b)(6), made applicable by Bankruptcy Rule
7012(b)(6), a complaint should not be dismissed for failure to state a claim upon which relief can
be granted, “unless it appears beyond doubt that the plaintiff can prove no set of facts in support
of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 46–47 (1957).
In making that determination, the court must accept as true all pleaded allegations and view the
complaint in the light most favorable to the plaintiffs. Hatfill v. The New York Times Co., 416
F.3d 320, 329 (4th Cir. 2005).
The defendant first contends that the plaintiffs failed to set out plausible allegations to
warrant a denial of discharge in the defendant’s chapter 7 case pursuant to § 727(a)(2), (3), or (4)
of the Bankruptcy Code. “Generally, a Chapter 7 debtor’s conduct, no matter how reprehensible,
will not forfeit discharge unless covered by one of the grounds listed in Section 727.” In re
Bernstein, 78 B.R. 619, 622 (S.D. Fla. 1987). Pursuant to § 727(a)(2), (3), and (4) of the
Bankruptcy Code a court will grant a debtor a discharge unless the plaintiff can prove that the
debtor:
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(2) with intent to hinder, delay or defraud a creditor or an officer of the estate
charged with custody of property under this title, has transferred, removed,
destroyed, mutilated, or concealed, or has permitted to be transferred, removed,
destroyed, mutilated, or concealed—
(A) property of the debtor, within one year before the date of the filing of the
petition; or
(B) property of the estate, after the date of the filing of the petition[.]
(3) the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or
preserve any recorded information, including books, documents, records, and papers,
from which the debtor's financial condition or business transactions might be
ascertained, unless such act or failure to act was justified under all of the
circumstances of the case;
(4) the debtor knowingly and fraudulently, in or in connection with the case--
(A) made a false oath or account;
(B) presented or used a false claim;
(C) gave, offered, received, or attempted to obtain money, property, or
advantage, or a promise of money, property, or advantage, for acting or
forbearing to act; or
(D) withheld from an officer of the estate entitled to possession under this
title, any recorded information, including books, documents, records, and
papers, relating to the debtor's property or financial affairs;
11 U.S.C. § 727(a)(2)–(4). Each of these “grounds for denial of discharge center on the debtor’s
wrongdoing in or in connection with the bankruptcy case.” H.R. REP . NO . 95-595 (1978). The
defendant contends that the allegations in both plaintiffs’ complaints support § 523(a)(2), (4), or
(6) claims for relief, but not claims for relief pursuant to § 727(a)(2), (3), or (4) of the
Bankruptcy Code.
The SilverDeer Plaintiffs
The SilverDeer plaintiffs allege in their complaint the following: The SilverDeer
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plaintiffs and the defendant were named defendants in a state court action. The defendant
terminated their joint counsel’s representation and hired new counsel for himself. The defendant
was the manager of SilverDeer, LLC. After the lawsuit was filed, the defendant ceased coming
to SilverDeer’s offices to take part in the management. The defendant and state court plaintiff
were engaged in secret negotiations to settle the state court action, and the defendant purposively
tried to conceal their discussions from the SilverDeer plaintiffs. On July 16, 2010, the defendant
entered into a settlement agreement on behalf of SilverDeer, LLC with the state court plaintiffs.
By entering into this agreement the defendant destroyed his equity interest in SilverDeer, LLC.
This agreement caused SilverDeer, LLC to go into involuntary bankruptcy. By entering into the
settlement agreement with the state court plaintiffs, the defendant acted maliciously and with
intent to harm the SilverDeer plaintiffs. Prior to entering into the settlement, the defendant
consulted with a bankruptcy attorney who informed the defendant that he could obtain relief
from liability in the state court action by filing for relief under chapter 7 of the Bankruptcy
Court, but the relief could be denied as to claims by the SilverDeer plaintiffs if the defendant
breached a fiduciary duty to them, committed fraud, or caused any willful or malicious injury to
them.
Even if the court takes the SilverDeer plaintiffs’ allegations as true, the SilverDeer
plaintiffs cannot prevail on a claim for relief pursuant to § 727 of the Bankruptcy Code. Here,
the SilverDeer plaintiffs’ basis for denying the defendant’s discharge stem from a pre-petition
settlement agreement. The SilverDeer plaintiffs allege that the defendant acted with intent to
defraud the creditors by entering into this settlement agreement. Even if that is true, the
defendant’s actions and intent with regard to the settlement agreement do not warrant a denial of
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discharge under § 727 of Bankruptcy Code. As alleged, the defendant’s actions do not fall under
any of the grounds for discharge enumerated under § 727 of the Bankruptcy Code. Assuming
the defendant acted fraudulently or concealed the settlement, the SilverDeer plaintiffs did not
allege that the defendant had the intent to defraud, hinder, or delay creditors in connection with
his bankruptcy proceedings. Nor do they allege that SilverDeer, LLC was solvent at the time the
settlement agreement was signed and that its creditors were harmed as a result of the agreement.
The plaintiffs allegations may support a claim for relief under § 523(a), but do not support a
claim for relief under § 727. Therefore, the defendant’s motion to dismiss the SilverDeer
plaintiff’s claims for relief pursuant to § 727 of the Bankruptcy Code is GRANTED.
The RDA Plaintiffs
The RDA plaintiffs’ complaint alleges the following: “[A]s early as 2009, Defendant
diverted to himself all of the Plaintiffs’ revenue and concealed from Plaintiffs and their other
manager and members and their accounting services provider the fact and amount of payments
received from executive recruiting services clients.” The defendant used this revenue to pay
personal expenses and to obtain legal advice related to bankruptcy. The defendant failed to
fulfill his fiduciary duty to the RDA plaintiffs.
Essentially, the RDA plaintiffs argue in their complaint that because the defendant
defrauded the RDA plaintiffs the defendant’s bankruptcy case was also fraudulent. The RDA
plaintiffs do not allege that the defendant committed these acts with the intent to defraud the
trustee or his creditors in his bankruptcy proceedings. Even if these allegations are true, the
RDA plaintiffs have not stated a claim for relief under § 727 of the Bankruptcy Code. If the
defendant committed fraudulent acts they were not alleged to have been committed in
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conjunction with his bankruptcy proceedings.
11 U.S.C. § 523(a) CLAIMS
The defendant next argues that the SilverDeer plaintiffs’ § 523 claims should be
dismissed for being time barred. Pursuant to Bankruptcy Rules 4004(b) and 4007(c), the original
bar date for filing complaints for denial of discharge and dischargeability was November 4,
2010. The SilverDeer plaintiffs filed their complaint on February 28, 2011. Therefore it follows
that the SilverDeer plaintiffs’ complaint is time barred.
The SilverDeer plaintiffs contend that equitable tolling is an exception to Bankruptcy
Rule 4007(c). In In re Benedict, 90 F.3d 50, 54 (2d Cir. 1996), the court stated, that the “time
period imposed by Rule 4007(c) is not jurisdictional and thus is subject to waiver, estoppel, and
equitable tolling[.]” Equitable tolling is “reserved for those rare instances where-due to
circumstances external to the party’s own conduct-it would be unconscionable to enforce the
limitation period against the party and gross injustice would result.” Rouse v. Lee, 339 F.3d 238,
246 (4th Cir.2003) (en banc) (quoting Harris v. Hutchinson, 209 F.3d 325, 330 (4th Cir. 2000)),
cert. denied, 541 U.S. 905 (2004). “[E]quitable tolling ‘must be guarded and infrequent, lest
circumstances of individualized hardship supplant the rules of clearly drafted statutes.’” Gayle v.
UPS, 401 F.3d 222, 226 (4th Cir.2005) (quoting Harris v. Hutchinson, 209 F.3d 325, 330 (4th
Cir.2000)). In order to state a claim for equitable tolling, the SilverDeer plaintiffs must have
plead “(1) extraordinary circumstances, (2) beyond [their] control or external to [their] own
conduct, (3) that prevented [them] from filing on time.” United States v. Sosa, 364 F.3d 507, 512
(4th Cir. 2004) (quoting Rouse, 339 F.3d at 246).
Here, the SilverDeer plaintiffs’ complaint alleges that they were not able to discover the
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fraudulent nature of the defendant’s settlement agreement in the state court action until February
2011. However, their complaint also alleges that the SilverDeer “[p]laintiffs were aware of this
purported settlement agreement shortly after the time it was executed by Deckelbaum . . . the
settlement agreement did not reveal the pattern of concealment, fraud, breach of fiduciary duty
and malicious misconduct[.] . . . At most, the settlement agreement itself revealed only a
questionable business transaction[.]” Notably, the defendant’s settlement agreement was entered
into on July 16, 2010. The SilverDeer plaintiff’s complaint states that prior to filing for relief
under chapter 7 of the Bankruptcy Code the defendant was a manager of the SilverDeer plaintiff.
The SilverDeer plaintiffs argued in their complaint that the defendant owed a fiduciary duty to
the SilverDeer plaintiffs. The SilverDeer plaintiffs’ complaint alleges that the defendant did not
have authority to enter into this settlement and as a result of the defendant’s settlement
agreement SilverDeer, LLC was forced to file involuntary bankruptcy. Further, it is undisputed
that the defendant filed for individual bankruptcy shortly after executing this settlement
agreement.
Based on these allegations it is clear that this is not one of those occasions where
extraordinary circumstances prevented the plaintiffs from filing a complaint pursuant to § 523(a)
of the Bankruptcy Code. Even if the SilverDeer plaintiffs’ allegations are true, the SilverDeer
plaintiffs had sufficient notice of the facts and circumstances giving rise to their claim before
November 4, 2010. Even if it is true that they were not aware of the full extent of the fraud until
February, they were aware of the purported unauthorized settlement, the “questionable business
transaction”, the defendant’s fiduciary relationship with the SilverDeer plaintiffs, and the
involuntary bankruptcy of SilverDeer, LLC. These facts alone were sufficient to put them on
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notice to file a claim for relief pursuant to § 523 of the Bankruptcy Court. The extraordinary
remedy of equitable tolling is not appropriate in this case.
The defendant argues that the doctrine of equitable tolling does not apply to deadlines for
filing dischargeability complaints. The defendant relies on Santos v. Santos (In re Santos), 112
B.R. 1001, 1006 (9th Cir. BAP 1990), holding “that the plain language of [4007(c) and 4004(a)]
precludes the application of the doctrine of equitable tolling.” The defendant also argues that the
Fourth Circuit’s decision in Farouki v. Emirates Bank International, Limited, 14 F.3d 244 (4th
Cir. 1994), to extend the time to file a complaint under § 727(a) of the Bankruptcy Code on
equitable grounds is limited in scope and distinguishable from this case. Based on the court’s
finding that the SilverDeer plaintiffs did not sufficiently plead grounds for equitable tolling it is
unnecessary to address the issue of whether equitable tolling is an exception to 4007(c) and
4004(a).
Based on the foregoing, the defendant’s motion to dismiss the SilverDeer plaintiffs’ §
727 and 523(a) claims is GRANTED. The defendant’s motion to dismiss the RDA plaintiffs’ §
727 claims is also GRANTED.
END OF DOCUMENT
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